RBA figures point to productivity challenges

The jittery national economy has led to a downturn in manufacturing productivity.

In the Reserve Bank of Australia’s Statement on Monetary Policy, the bank outlined how GDP and employment levels have played out in each industry, up to June 2019. While employment has continued to grow, at between 2 and 3 per cent throughout 2018 and 2019, GDP has fallen, leading to less economic output per hour worked.

This is the second year that productivity has dipped below zero in the last two decades, with the last year recording a negative figure being the 2010-2011 financial year.

While manufacturing did not fall as far as the construction sector, which fell by 0.7 per cent in the year to June 2019, manufacturing was the second worst performing sector of the economy, falling by 0.3 per cent.

Responding to the figures, Innes Willox, Ai Group chief executive, noted how the figures represented a fragile economy.

“It is troubling that sluggish growth was recorded despite very strong growth in exports and government services. These positive elements are masking the extent of weakness in the domestic economy and the significant impact of local and global headwinds including trade disruptions, extensive drought and a cyclical housing downturn,” he said.

Willox singled out the findings on productivity as the most concerning.

“Amid the low numbers evident in much of today’s National Accounts, the red ink recorded against Australia’s productivity performance is the most disturbing.”

In releasing the figures, the RBA pointed to the decline in the housing market as a reason for construction’s low productivity, which could flow on to manufacturing through fewer orders for building products. However, based on comments made by RBA governor, Philip Lowe, in 2018, the benefit of greater investment in the manufacturing sector would be widely felt, as the ratio of investment to output in the manufacturing sector is one of the highest.

Willox echoed these statements, however highlighting that methods to overcome sluggish productivity levels will require cross-sector initiatives.

“Clearly this needs to be turned around and it points to the critical importance of measures to lift business investment, improve workforce skills, address excess regulatory burdens and improve organisational performance. These need to be shared objectives and responsibilities: shared by governments across the federation, shared by employers and employees and shared by the broader community. Without a turnaround in productivity we will not return to the more robust growth in incomes and economic competitiveness on which advances in our broader well-being rest.”